What the Fed Reserve's Balance Sheet Expansion Means for Bitcoin

The U.S. Federal Reserve is again expanding its balance sheet and prominent experts believe that could bode well for bitcoin in the long run.

The U.S. central bank's balance sheet includes a large number of distinct assets and liabilities.

Further, $270 billion has been reportedly added to the balance sheet since Sept. 11, which implies an average daily growth rate of $5.8 billion.

It's worth noting that the Fed does not have the authority to enforce a particular federal funds rate and instead influences the money supply to keep rates in the target range, currently 1.5 to 1.75 percent.

Markets don't believe the Fed.Fed Reserve chairman Jerome Powell has repeatedly said that treasury purchases are not quantitative easing, whereby the central bank snaps up government bonds to boost the money supply and buttress economic growth.

Peter Boockvar, chief investment officer of Bleakley Advisory Group, editor of The Boock Report and CNBC contributor, is of the opinion that the markets view any increase in the size of the Fed's balance sheet as QE.The recent rally in the US stock market also indicates the investors are not buying the Fed's rhetoric and are viewing the ongoing balance sheet expansion as QE, as pointed out by Sven Henrich, popularly known as NorthmanTrader.

The popular narrative in the crypto markets is that bitcoin is effectively digital gold and a hedge against monetary and fiscal indiscipline.

Essentially, the pace of supply expansion is reduced by half every four years as opposed to major central banks, which have been expanding money supply since 2009.Looking ahead, the Fed is likely to continue expanding its balance sheet in the near future, as the money market is unlikely to return to normalcy any time soon, according to JPMorgan Chase.

"Central banks expanding their balance sheets is quantitative easing in disguise. In effect, central banks buy government bonds and expand the repo market program with the intent to keep money markets in check. Bitcoin and gold may provide an alternative to and potentially a hedge against catastrophic failures in such heavily controlled central banking systems."

"Prior bitcoin bull runs were characterized by a gradual decline in equity market volatility. For example, we've noted its, albeit imperfect, inverse relationship with the VIX Index over longer time horizons," according to analysts at Delphi Digital.